Dubiln Packard

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Landlords Must Adjust Restaurant Rents After COVID

Restaurants Should Stop Paying Rent Right Now and Negotiate Adjusted Lease Terms

Restaurants, if they can open at all, will not have the same number of customers per night forcing restaurants to cut expenses wherever they can. Rent, being one of the largest expense and calculated based upon nightly traffic, must be reduced for a restaurant to be able to survive. Landlords Must Adjust Restaurant Rents After COVID.

Tenant Out of Business Because Landlord Didn’t Lower Rent

Restaurants have been forced to close for up to two months by orders of Governors across the County seeking to flatten the COVID curve with Stay-At-Home orders bringing already struggling restaurants to their knees.

As States begin to lift stay-at-home rules and allow restaurants to open, many restaurants are looking at severe reductions in revenues as States demand social distancing between diners transforming what might have been a 50 person dining room to a 20 or 30 person dining room. How can a restaurant continue to pay the same rent that was based upon revenues of 50 people 2 or 3 times an evening? Landlords Must Adjust Restaurant Rents After COVID. LANDLORDS TAKE NOTICE.

Landlords Must Negotiate New Lease Terms Or See Long-Term Vacancies.

Landlords are certainly in a tough spot but, if they don’t agree right now to reduce rents, they are going to have a vacant first floor space that isn’t going to be taken by another restaurant anytime soon.

As reported in Restaurant Business: The Cheesecake Factory notified its landlords that it planned to not pay April rent as it closed restaurants or generated a fraction of typical revenue as sales shifted to all takeout and delivery and hundreds of operators and chains are doing the same thing: contacting their landlord about rent, which typically comes due the first of the month.

Restaurants are facing months with little or no sales and many have no idea when they will come back. That rent can be difficult, if not impossible, to pay. But landlords, too, could face months with a substantial decrease in revenue as retailers and restaurants hold back on rent.

Some landlords are willing to listen but others, referencing their own obligations to pay loan payments, utilities and other ongoing expenses, are not, or perhaps, cannot.

In those situations where a landlord is willing to allow a tenant to skip a month or two of rent, they are still expecting that at some time in the future, that skipped rent will be made up saddling the business with additional debt it probably can’t afford.

See more articles and information on our COVID Restaurant page.

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COVID Will Force Small Businesses To Resort To Bankruptcy.

Deep Recession and Lack of Resources: COVID will force Small Businesses to resort to bankruptcy.

The United States economy is likely to remain in a deep recession that economists say may linger for more than a year or more and small businesses will be hit hard. COVID will force Small Businesses to resort to bankruptcy.

COVID effects on Small Businesses

Retail businesses were already in a death-spiral before COVID hit with consumer buying moving to online e-commerce. Local businesses, no matter how much we might like to support them just can’t offer the convenience, section and price that online stores can offer.

Restaurants were also in trouble with soaring rents, terrible working conditions, and a move to take-out with GrubHub, DoorDash and Uber Eats. Margins on restaurants can’t handle the 30% “vig” these delivery services take out of each sale and restaurants can’t afford not to be in the delivery game.

What Businesses Are Effected and Why?

In a survey by the SMB (Small and Medium Business) Group of more than 500 businesses it found the COVID-19 impact varies by type of business, with these three categories most affected: personal service, hospitality and retail. The smaller the company, the harder the hit, with companies with fewer than 20 employees most affected.

Why? Because a small business with fewer than 20 employees typically lacks cash flow and capital. Those companies were the first to reduce hours for employees or lay off employees. Those businesses were also the first to stop hiring subcontractors.

“Those businesses had a challenge, and will experience the most extreme negative impact,” said Laurie McCabe, SMB’s cofounder and partner. “They had to learn how to serve customers in the new stay-at-home environment.”
McCabe said that continuing to operate has been impossible for small businesses which provide hands-on services, such as hair salons and spas, home improvement and repair contractors, and for many dental and medical offices.

Don’t Expect Consumers to Go Right Back To Buying

The White-House wants us to believe that immediately upon lifting stay-at-home orders, consumers will go right back to buying and employees will go right back to their old jobs with not even a hick-up. That just isn’t going to happen when the government can’t get its act together on testing and a vaccine may still be be many months away. People just won’t feel safe going to stores and restaurants.

Small businesses have rent to pay – often to another small business that can’t afford to wait.

Revenues of Small Businesses Will Be Reduced Weighing on Their Ability too Pay Rent and Debt Payments.

If a restaurant is forced to keep distance between customers then its revenue is going to be cut in half or more. With reduced revenues comes reduced ability to pay rent and loan payments.

Rents must be reduced.

Retail real estate values simply cannot stay where they are today. If a retail tenant is paying $5000 a month rent but it’s daily shopping volume is reduced by social distancing rules, how can the retail shop afford to pay the same rent it paid before COVID. If the landlord chooses to enforce the current lease and evicts the store (and putting it out of business) what new business is going to come in at the old rent? And the same for restaurants.

If landlords and tenants can’t come to terms in amending leases, the small business is going to seek the help of the bankruptcy court.

Loans Must Be Worked Out

The same goes for loan payments. How can a retail store or restaurant pay monthly loan payments if its revenues are lower every month? Loans will have to be amended to suit the new business environment and if a bank and a business can’t agree on work-out terms, the business is going to seek the help of bankruptcy courts.

Small Businesses Will Struggle Before They Die

Small businesses are going to struggle before they finally decide to seek help in bankruptcy. They are going to use credit cards, raid the sales tax trust account and cut costs.

It is inevitable that these short-term strategies will backfire making it worse for owners. COVID will force Small Businesses to resort to bankruptcy.

Help Is Here In The Form of The Small Business Recovery Act (SBRA)

Coincidentally, help is available with a new set of laws in bankruptcy designed specifically to help small businesses. The Small Business Recovery Act (SBRA) because law at the end of February 2020 which simplifies chapter 11 bankruptcy for small business. There are some very important changes that can help a small business change the terms of a second mortgage that may have been taken against the primary residence, cram down SBA or other commercial loans and more.

Bankruptcy Takes Planning – Don’t Wait Until The End

A small business shouldn’t wait until it is under the gun to look into bankruptcy. Bankruptcy for a small business often takes some pre-bankruptcy planning.

Don’t wait. Contact a bankruptcy lawyer licensed in your State now even if bankruptcy is far in the future.

For more articles related to COVID resources see our CoronaVirus Resource page. Restaurants see our COVID Restaurant page

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Coronavirus government relief package doesn’t work for restaurants

Chefs and restaurant owners believe the coronavirus government relief package doesn’t work for restaurants. Restaurants have been the hardest hit by the coronavirus pandemic.

Celebrity chef and food advocate Tom Colicchio, owner of the restaurant and hospitality group Crafted Hospitality, was one of many restaurateurs who made the difficult decision to close his kitchens and lay off over 400 of employees due to the novel coronavirus, COVID-19.

Now, he’s helping to lead the charge to provide desperately needed aid through the Independent Restaurant Coalition to food service workers, small business owners and their communities.

“We started it about three or four weeks ago when we realized the enormity of the problem that we were facing and we knew there was a stimulus package that was going to help small businesses,” Colicchio said on ABC News’ “Pandemic: What You Need to Know.”

“We found groups in Chicago that were working on the same issue. We found groups throughout the South and we put all these coalitions together and very quickly we hired a lobbying team, a [communications] team, and we are having direct conversations with members of Congress to let them know the issues that we have in the restaurant industry,” Colicchio said. “And also — to let [Congress] know that the — CARES Act — doesn’t really work for the restaurant industry right now.”

He said he’s also trying to get the message to Congress that the Coronavirus Aid, Relief, and Economic Security Act (CARES) Act “doesn’t really work for the restaurant industry right now.”

The CARES Act provides the single largest economic relief package in U.S. history, and will include direct payments for qualifying individuals as well as loans and loan forgiveness for small businesses.

I couldn’t agree more with Chef Colicchio. Loans through the SBA are designed to keep people on the pay-roll temporarily but if your restaurant is closed, why not just let the employee file for unemployment. The SBA loans are promised to be forgiven but only if at least 80% of the funds are used to pay employees. What about rent, insurance, and so many other monthly expenses over and above wages?

Many restaurants are closed now and may never re-open. Others may re-open but look very different from how they looked in January. The restaurant business model is in need of a big change and this might just be the time to make that change.

For more information and links to other articles – go to our Restaurant COVID Relief page